We know you’re nervous. Pretty much everyone is on edge about their portfolios lately, but at times like these it’s important to analyze what you hold and see if changes need to be made.

So we’ve conducted a review of the safety and resiliency of Global Income Edge’s holdings to allay any reader concerns about individual holdings. In this issue we’ll look at our conservative holdings.

In sum, our Conservative Portfolio, which has an annualized dividend yield of 4.5%, is holding up well and should continue to do so. And the Conservative Portfolio is down less than half of a percent in the last year, versus the S&P 500, which is down almost 8%.

Selling on Facts, Not Fear

Most of our holdings are stable because they are multibillion, multinational companies that can weather business cycles and economic storms well while still delivering income.

Some subscribers have wondered why we haven’t sold more of our holdings recently. We’ve generally held firm because we ignore the fear and stick to the facts of a company’s fundamentals. If the fundamentals are strong and a company can continue to pay its dividend, we keep it.

Certainly, with China’s sagging economy, oil prices crashing and central banks the world over scrambling to stabilize things, there’s plenty to be fearful of, and there’s a flight to safety. As evidence: the rush into U.S. Treasurys pushed the yield on the 10-year bond down to 1.75% from 2.27% at the end of last year.

But it’s easy to forget the positives when fear is the dominant market driver. The International Monetary Fund only cut global growth 0.2% this year to 3.4% and predicts 3.6% for next year.

Yes, the global economy is messy, but we believe that a globally diversified portfolio is the best strategy because developing economies continue to grow faster than developed economies, though at a slower rate than before.

So that’s the backdrop. Taking the global economy and our strategy in mind, we analyzed a number of metrics to determine the safety of our holdings, and particularly their ability to maintain and grow their dividends.

One metric is our proprietary GIE early warning system. This is a financial model I developed for income investments that breaks down a company’s return on equity (ROE) into its individual components, which makes analyzing what’s actually driving growth easier. It also alerts us to declining margins and rising leverage. And all of the holdings of the Conservative Portfolio must have pricing power, global diversification and market dominance, as well as strong balance sheets, to be included.

Another metric is our GIE five-point liquidity ranking. This shows which companies in the Conservative Portfolio offer the strongest balance sheets and are best able to continue paying dividends in this volatile global economy. A more detailed explanation of this ranking is at the end of this story.

In this review we’ll present our five-point ranking as water drops. But to be clear: We have confidence that every one of our recommended stocks has a secure dividend. One drop means solid liquidity, and five drops mean extremely strong liquidity.

The Conservative Portfolio

Here’s how the holdings stack up:

Amerigas Partners LP (NYSE: APU). Yes, it’s an energy company, but it’s a stable one with a sustainable dividend yield that’s currently 9.34%.

Amerigas is the largest retail propane distributor in the United States. Although its business is different from midstream master limited partnerships (MLPs), the stock is down recently owing to the LP in its name. We saw that this guilt by association presented an opportunity, so we scooped it up.

Unlike its MLP peers, AmeriGas is not dependent on the stock market for money; instead it funds growth from internal sources. So the bear market in energy stocks won’t affect it. And AmeriGas actually gets a margin boost from falling energy prices.

AmeriGas controls 15% of this highly fragmented market, with most of its assets clustered around the major population centers of the East and West coasts. The firm has plenty of cash to continue paying its distributions, and the distribution has been growing 4.5% annually. The warmer-than-average winter hasn’t helped the company, but that’s a short-term issue.

Buy Amerigas Partners up to $50.

Aqua America Inc. (NYSE: WTR), with a dividend yield of 2.14%, is growing via acquisitions in the highly fragmented water and wastewater industries. Over the past 10 years, the company completed nearly 200 acquisitions and growth ventures, and its service territories now cover 3 million people in eight states.

Aqua’s dividend is secure. It has a dividend coverage ratio of 2 times and a low payout ratio of 50%, which means there’s room to grow the dividend. In applying our early warning system, the firm had almost 20 quarters of positive return on equity that averaged around 3%, and net profit margins that have hovered around 30%.

Buy Aqua America up to $35.

AT&T (NYSE: T) is a giant telecom growth machine with plenty of extra cash for dividends and expansion.

Among its gems: satellite TV provider DirecTV, which generated $42 billion in its most recent quarter, a nearly 22% increase year-over-year. For the full year, AT&T reported revenues of $148.6 billion, up 10.8% over last year. The company’s dividend coverage ratio is a solid 1.3 times and the firm has a still reasonable payout ratio of 76%.

AT&T says it expects double-digit consolidated revenue growth in 2016 and adjusted earnings growth in the mid single digits or better.

Buy AT&T up to $38

Diageo (NYSE: DEO) distills alcohol into cash. It owns 14 of the top 100 distilled spirits brands in the world, including Gordon’s gin, Johnnie Walker scotch, and Smirnoff vodka, with spirits accounting for about 75% of sales. Beer generates about 20% of revenue, with brands ranging from the iconic Guinness to Jamaican Red Stripe.

In early January, when reporting its half year results, the firm boosted its dividend 5% and reported increases in sales and earnings, though asset sales and currency exchange issues did drag down results.

Diageo has exhibited a pretty stable return on equity (ROE). For the last 14 quarters, ROE ranged from 4.28% to 10.21%, whereas many firms have struggled to achieve this type of long-term stability. The company’s dividend coverage ratio is a solid 1.7 times, and the firm is highly capable of paying back its short-term and long-term liabilities.

Diageo has significant amounts of cash left over for stockholders and for investment after all obligations are covered.

Buy Diageo up to $130.

GlaxoSmithKline (NYSE: GSK) is a British pharmaceutical company that recently beat earnings expectations and expects double-digit core earnings growth this year.

Even as the company has been experiencing heavy competition from generics in the United States and Europe, analysts believe that the recent launch of respiratory drugs and the strengthening in various other divisions will offset this weakness to keep pharmaceutical sales steady for the next three years.

The firm did have a decline in net profit margin of 5.63% and a decline of ROE to 3.99%. The fall was accompanied by an increase in leverage. This is the first time in more than 20 quarters that the firm had an ROE decline. We typically watch for two quarters of negative ROE before putting the firm on watch for a ratings change. We will be monitoring GlaxoSmithKline closely. 

However, the firm sports a high dividend coverage ratio of 2 times and a current ratio of 1.2 that indicates financial health. And GlaxoSmithKline has plenty of cash left over for stockholders and investment.

Buy GlaxoSmithKline up to $54.

For the next company in our lineup, Luxottica Group (NYSE: LUX), please see page xx and my colleague Ben Shepherd’s story.  In applying our early warning system, we found that Luxottica has more than 20 quarters of positive ROE—a great sign.

In early February, pharmaceuticals giant Merck & Co. (NYSE: MRK) reported strong profits even though sales have slipped slightly. But with a pipeline of 38 drugs in late-stage development, we continue to believe Merck is undervalued relative to its peers, especially when considering its new opportunities.

New drugs showing blockbuster potential are Januvia for treating diabetes, Keytruda for melanoma, as well as its Ebola vaccine, which was developed with NewLink Genetics and is still in the approval stages.

In early February, the company reported earnings per share up 7% from the year-earlier quarter and higher than the 91 cents Wall Street analysts expected.

Full-year earnings, excluding items, came in at $3.59 per share, up 3% from 2014 and higher than the $3.57 analysts anticipated. However, worldwide sales for the quarter came in at $10.2 billion, down 3% from the previous year. Notwithstanding, Merck predicted earnings for 2016, excluding items, would come in at $3.60 to $3.75 per share, and full-year sales of $38.7 billion to $40.2 billion, which reflects an expectation the firm will grow this year. Merck’s ROE rose 4% from the previous quarter, and the firm has a dividend cover of 2 times.

Buy Merck up to $65.

National Grid (NYSE: NGG) offers strong international diversification. It’s one of the largest energy utilities in the world, comparable to America’s biggest utility, Duke Energy. About 73% of National Grid’s operations are based in the U.K. and 27% are in the United States; both areas are expected to grow in 2016.

The global utility reported strong numbers last November: Profits were up 14% at $2.6 billion. Post-tax earnings at $1.6 billion and earnings per share of 41 cents were both up over 20% half-on-half, according to company earnings materials. The firm increased its dividend 2% to $1.1323 per American depository share.

National Grid made news recently when it announced it would sell a majority stake in its $16.9 billion U.K. gas distribution business, as it wants to use some of the proceeds to invest in higher-growth companies. It plans to return a large portion of the sale to shareholders, so stay tuned and hang on to that stock.

The company’s dividend coverage ratio is a solid 1.6 times.

Buy National Grid up to $74.

Novartis (NYSE: NVS), Europe’s second-largest drugmaker, reported in late January that its profits dropped 5% as a result of financial losses in its Alcon eye care unit. Sales at Alcon fell 13% to $2.3 billion, according to reports.

We believe that there should be concern over the drop in Alcon sales, which make up 20% of revenue. Management’s actions to arrest the decline and replace the managers of the unit have been somewhat reassuring.

Further, the firm’s drug sales are where the value proposition is with Novartis. Most pharmaceutical experts agree that promising heart failure treatment Entresto and psoriasis drug Cosentyx, if successful, can make up for recent weakness at its eye care unit and for generic competition from expiring patents. 

The firm has not had a negative return on equity in recent memory. In fact, its profit margins have been stable for more than 20 quarters. Alhough in the last few quarters, Novartis’ ROE has been just 1.3% and 2.46%. We’ll be watching this holding closely to see if the current financial weakness leads to a negative ROE next quarter.

The firm has plenty of cash for stockholders and for investment.

Buy Novartis up to $100.

Philip Morris International (NYSE: PM) sells iconic tobacco brands, such as Marlboro, Chesterfield and Parliament, outside the U.S. And while anti-smoking campaigns are pressuring profits, its fundamental business is strong. Earnings-per-share growth averaged nearly 10% as its dividend per share grew an average of 13% annually over the past five years.

Philip Morris was spun off from Altria in 2008, and it now sells seven of the world’s top 15 brands in about 160 countries. It ranks number one in market share in 59 countries and has more than 40% market share in 45 other countries.

 Though anti-smoking campaigns have intensified around the world, we believe the company still has many more years as a solid income investment, and with the advent of electronic cigarettes, it has potential for new growth opportunities.

In the last quarter, the company reported earnings per share of 81 cents, which was in line with analyst estimates, though earnings slipped 21.4% from the prior-year quarter because of a decline in sales. Excluding damaging currency effects, earnings declined 3.9% year–over-year.

In our liquidity analysis, we found that PM has a sound dividend coverage ratio of 1 times and a stellar current ratio that is over 1, indicating strong financial health. Our early warning system did identify a weakening in net profit margins, which reflects the sales declines this year and the currency impact on earnings.

But overall, the firm has maintained net profit margins in the 25% range over the past eight quarters, dipping to 19% only in the last quarter. We’ll be monitoring the company’s ability to stabilize its profit margins this year.

Buy Philip Morris up to $90.

Sempra Energy (NYSE: SRE) is a San Diego-based energy services company that operates natural gas-fired power plants, pipelines and storage facilities. The firm serves more than 31 million consumers worldwide. The firm’s other businesses develop energy infrastructure and provide gas and electricity services in North and South America.

Last year we noted that Sempra’s growth prospects were impressive and added this global utility to the portfolio. We noted at the time that the international division’s earnings, known as IEnova, have been steadily expanding 11% a year. Also last year, Sempra forecasted a 50% increase in earnings per share between now and 2019, based on major international expansion projects.

When we apply our early warning system, Sempra is a picture of stability, with not a single negative quarter of return on equity in recent memory, going back more than 10 years. The company also sports a strong dividend coverage ratio of 2 times.

The company recently had to deal with a gas leak in its service territory at an underground storage site owned by Sempra subsidiary Southern California Gas Company (SoCalGas). We have been monitoring this to see how it would hurt earnings; liability estimates now are from $600 million to $700 million. That should be recoverable through insurance and rate increases, though. The firm recently reported that it had been making progress on plugging the leak.

 Still, we need to hear the gas leak has been plugged and know all the costs before moving ahead.

Hold Sempra Energy.

Conservative Portfolio’s #2 Best Buy, Southern Company (NYSE: SO), is the world’s 16^th largest utility company and fourth largest in the United States, and is one of the nation’s most solid regulated utilities. It is one of the few that has the balance sheet to build new power plants that will support new growth and new earnings.

While there has been some concern over cost overruns at its Vogtle nuclear and Kemper integrated gasification combined cycle projects, the company has had success in largely stabilizing these projects through rate recovery and a litigation settlement with the builders.

Further, we believe the acquisition last year of natural gas distribution firm AGL Resources was a masterstroke given that the nation’s utility industry will be replacing a large part of its coal fleet with natural gas-fired power plants.

What’s remarkable about Southern Company is that throughout all the uncertainties over cost recovery around its new power plants the company has maintained a steadily increasing return on equity, moving from around 2% to as high as 4.34% in the last three quarters, according to our model.

Buy Southern Company up to $55.

Consumer goods giant and #3 Best Buy Unilever (NYSE: UL), the maker of well-known brands such as Hellmann’s mayonnaise, Lipton Ice Tea and Ben & Jerry’s ice cream, posted strong 2015 full-year results, with core revenue growth of 4.1%.
The firm’s brands appeared to be gaining market share in various parts of the world despite significant market volatility and economic headwinds.

Nevertheless, the company believes 2016 will be a tough year. “We are preparing ourselves for tougher market conditions and high volatility in 2016, as world events in recent weeks have highlighted,” said CEO Paul Polman in a statement. The CEO reiterated his belief that the company can continue sales growth of 3% to 5% per year.

Unilever has delivered almost continuous return on equity of between 7% and 9% over the last five quarters on consistent net profit margins of more than 9%. The company’s dividend coverage ratio is 1.4 times. And the company has cash left over for stockholders and for investment.

Buy Unilever up to $45.

Verizon Communications Inc.’s (NYSE: VZ) intense focus on having the best network and technology is helping it lead the way as a 21^st century media company.

As the nation’s top wireless carrier, Verizon services 109 million customers and a vast network that covers more than 95% of the U.S. population. And with more and more media being streamed via wireless spectrum, Verizon’s network is an increasingly lucrative conduit.

It also has the best strategy among its peers for making money on its landline business. The company’s FiOS, which offers bundled Internet, television and phone services, has helped improve customer retention, while stealing some market share back from cable competitors.

But its wireless segment, which generates more than 70% of revenue, will continue to drive long-term growth. Over 80% of new phone sales are smartphones, and these data-intensive devices have helped pad Verizon’s margins as customers pay up for more expensive services.

In late January, Verizon posted stronger-than-expected revenue, increasing 3.2%, and an addition of 1.5 million customers.

With a robust return on equity of between 30% and 40% in the last four quarters on strengthening net profit margins, Verizon has been posting some of its strongest and most stable numbers. The company also boasts a dividend coverage ratio of 2 times, and the firm has cash left over for stockholders and for investment.

Buy Verizon up to $59.

The #1 Best Buy, Vodafone (NSDQ: VOD), is a U.K.-based telecommunications company with operations in Europe and developing countries. Vodafone has a whopping 436 million wireless customers (only China Mobile has more) who pay a wireless bill each month.

Vodafone’s strength as an income investment is that it’s one of the most geographically diversified telecoms in the world. Its operations span 26 countries, ranging from the developed markets of Europe to emerging markets in Africa.

Vodafone generates fairly steady growth because of that diversification. While service revenue in the telecom’s largest markets of Germany, the United Kingdom, Italy and Spain was flat to down by as much as 2% in the most recent period, overall service revenue was up 1.2%. Driving that improvement was 6% growth in India, a 3.9% gain in South Africa and marginal gains in other emerging markets. When mature markets lag, developing ones can pick up the slack.

The consensus five-year growth forecast for Vodafone’s earnings is 8.5%, which seems to be pricing in a sluggish European economy. If that region sees a true recovery, that forecast will rise. Vodafone’s earnings are somewhat volatile, depending on exchange rates and other factors. Still, there is plenty of room for dividend growth over the next few years. Forecasters expect its annual dividend, currently $1.04 a share, to rise by about a dime each of the next two years.

Buy Vodafone up to $39.